The profile you presented is my husband and I minus the divorce. We’ve been frugal our entire marriage and we’ve been blessed to have the freedom that goes with it. We’ve been putting money away since we were both 22 and were retired at age 58 and 55.
Extremely helpful! I’m almost 56 years old and doing some pretty serious retirement planning. I plan to retire at age 61. Great advice to rack up as much in cash 2 years before and after retirement 👍
I couldn't agree with you more. I've been retired for just a few months now and all that living way below my means and investing all my working years payed off. I remember back when I started putting into my 401k I had to keep tabs on how much I was putting in because back then it was much easier to reach your limit. Another great video.
Top of the year, I moved 5% inside of IRAs to money market. Enough for 2 years of obligations. Financial advisor didn't like it. And we did miss this last up tick on 5%. Josh, thank you for helping the working people. A few financial companies only want to help $500k or more. My mom grew up with dirt floors in NorthDakota. She said that you could sweep them clean, but don't mop them. Amazing where you can get in 2 generations by investing 15% and saving for future vs buying on credit.
Josh,the idea of contributing to the cash portion of your retirement account during your last 2 or 3 years of working is good advice. It sure helped me because I retired in 2008.
I've been asked countless times "What do you do now that you're retired?" My answer: I was fortunate to have earned a chemistry degree in my younger years and now in my retirement, I put my chemistry to good use and I now enjoy turning beer, wine, Scotch, and margaritas into urine.
A NICE VIDEO, EVERYONE NEEDS MORE THAN THEIR BASIC INCOME TO BE FINANCIALLY SECURED. THE BEST THING TO DO WITH YOUR MONEY IS TO INVEST IT BECAUSE MONEY LEFT IN THE BANK ALWAYS END UP BEEN USED ONE WAY OR THE OTHER WITH NO RETURNS. I USED TO BE A VICTIM OF SUCH, NOT ANYMORE. I INVESTED AND MAKE STEADY PROFITS.
The pandemic has taught everyone the importance of having multiple stream of income, unfortunately having a nice paying job doesn't mean you are financial free or secured.
With the consistent weekly profits I'm getting from my investments with Joanna Maliva Lee, I have no doubts I am financially free and safe, she is the most reliable in the market now.
Investment is that tiny line that separates the rich from the poor. The wise from others. I can proudly say I am wise man today because I can provide for my family through my investments.
Ever since I stopped working with my former employer, I have been surviving through my investment with Joanna, am so glad I invested when I did, months ago I was able to raise money to start up my own firm.
One caveat. If you have a nice chunk of after-tax savings and have a few years before Medicare eligibility, you may not WANT to draw on your IRA/401k. With no W-2 income and keeping your taxable income low (living mostly on your savings), you can qualify for low or no cost medical insurance. The 10, 20, 30k savings each year may outweigh the IRA draw down at given tax bracket. If you go this route, you don't need to build up cash reserve in IRA quite yet.
This is exactly the way I am doing things. I am amazed at the people who plan retirement and plan pulling monthly or quarterly out of their 401k or mutual funds without much cash buffer. We have 3 years cash expenses now. Because we have not had debt in like forever, everything long paid for including the house, we are living on 1/3 our salary, and that's with taking international trips, etc. So we know our budget numbers we will need in retirement and everything above that is just gravy. Going to retire by 58/59 which is a few years away. Leaving most our investments in growth and some in aggressive funds with a small portion in conservative. We will be able to withstand a 4 year market crash and recovery before needing to pull funds from accounts. Plan on taking SS early, say around 64 to get just over 80% of our benefits which will be pocket change for whatever we want to do. It will not be needed. Great video. Keep it up. I wish more people who learn personal finance earlier in life, it makes all the difference.
I totally agree with you. I've been doing something similar. But for those that over think it. The fact is if you follow the advice he gives and on a very basic level maintain a checking/savings account...you'll be on your way to having the cash you need.
One of my favorite videos to date for soon to be retirees. This is the best 11 minutes I've spent today. My situation is very close to the case study you review, although I have a pension to draw from which helps. I am currently overly allocated in cash, I have 5.5 years of cash equivalents available as of now. Your video tells me I am being too conservative for the long haul. Its difficult not to be conservative in times like these....
I am pulling out in 3 years. I already have that 4 year window stashed away in CD's locked at 2.75-3.05%% until that time. Took the advice early last year to 'go big' on CD's and did 5 year one's, then the CD market crashed with the virus thing, thanks HWP!
Just making sure I understand. Sounds like the advice is to continue to contribute heavily into 401k, but to change the contribution strategy to very conservative, cash like investments. So when future withdrawls are needed they would be taxed like any other tax deferred 401k investment. Do I have this right?
The fear of pulling the plug is definitely there. Then deaths like Grant Imahara (Mythbusters guy) dying at 49 really hit home. If a healthy, rich guy can die at a drop of a hat like that, anyone of us can go any moment. I don't want to leave all my nuts squirred away and not enjoy any of it before I go. I don't want my last moments on this planet to be staring into the abyss of a cubicle wall. 100% with you about holding liquid funds for sequential return risk. The FIRE community talks about this all the time since retiring early carries even more risk as you walk away generally at your highest earning times and you need even more to get through those rough times with no market returns. In my opinion, if you are relatively minimalistic, that will help reduce some of the risks.
That’s great advice, almost exactly what I did before I retired. No money worries at all because I’ve got four years of cash which is still only a small part of the total.
Since I did such a poor job of living below my means in my younger years I will need to be playing catch up even after retirement. So controlling expenses is key for me. I simply must continue to live on less than I am making even after retirement so that instead of drawing down I am building up. It will be a challenge but I have been practicing the last few years. 😉
I took your advice 18 months ago and am glad I did. Retiring in 6 months with cash and no debt, pension, 401K and SS at 70. I have been contributing to my 401K for over 30 years at 15% to 20%. I reduced it to the company match at 5%. I could see that my contributions at this point didn't make a big difference. What the market does is what matters now. But I have put some cash away in case I need it.
I built up a huge cash position before I retired jun 1 ...sold my home relocated with half a million cash ,pension and 300 grand 401k ...back to work for next 6 mounts minimum waiting for the housing market to cool ..very pissed with the prices of homes refuse to pay for overpriced homes...age 54
If I am not mistaken, if you are a Federal employee, this strategy within the Thrift savings doesn't work in most cases, because when you draw out, it is drawn out proportionately. You can't just draw out from the G fund. If you keep your money in Thrift upon retirement, you won't be able to draw from the "cash bucket". If you draw out of the Thrift savings at retirement, you can divvy it up into different cash/bonds/stocks percentages when you retire. Which makes the whole thing about putting into the G fund of little value - since you can set your percentages upon retirement. Of course, the sequence of returns is another story...
I'm two years out and continuing to max out my 401k in the S&P. I want to recoup my Covid losses. It's a gamble, but since I have a generous pension package, I don't need my 401k in retirement. So, your advice applies to those that depend on their 401k in retirement, which is most retirees.
I think what you said at the end makes a lot more sense than the earlier comments to get there. Basically you need 4 years of cash and you need to be at that % a couple years before you retire. I would also argue at 3-4 years out you should be close to that, so that a big dip then won't make you pull out of stocks in a down market to fund the 4 years of cash. In another words, pick a good time to reduce the equity % in your portfolio as you approach retirement. After the market just now recovered in the last month, I went to five years cash. I was around 1-2 years of cash before that, now I have 5 years cash and I'm 3 years out from retirement. Feeling much better that another big drop won't derail my retirement plans....
I had some good news this week -- if God Permits - I could retire (age 57) this January 2021 -- not really mentally ready - so thinking more like Aug 2021. And we talked about the same thing - I have a 60/40 portfolio - which gives me around 5 yrs of cash. After listening to you - I'm glad you stressed it. Makes me feel more comfortable.
Well said! Definitely agree with the idea of having large cash reserves. I'm building up mine now...to also include any large purchases that are expected in the 4 year window.
Why not move the $70k (2yrs) or the $140k (4yrs) from the S&P 500 to the stable value and eliminate the sequence of return risk immediately from the portfolio? She could then continue to dollar cost average into the S&P 500 for the next two years and capitalize if there is a drop in the market.
With 1,900,000 zero liability what %should be cash. I need about 40 k per year in addition to our pension and ssa.. is 60/40 right or too conservative.
Save/invest/ work hard. Definitely not glamorous put it does works. I drive a 13 year old Corolla with 450 miles on it. Love my job probably will work till I’m 70 (I’m 64). I really like your ethical approach
She will get around 24000 in SSI. 700 thousand she will get at 3.5 percent another 24 thousand. So if she retires at 62. And uses 72 thousand to 65 to cover medical she will have 675 left. So she keeps taking out 24 thousand from her 401 so now she is living off of 72 thousand the rest of her life. Loook up the average income of a retiree. She is in Great Shape here
Josh Thanks for all the great advice in your channel. Much appreciated. My wife and I sacrificed a lot to make it to this point. We lived on 1 salary for many years so she could delay collecting social security to age 70, early next year. Now, once I die she'll be able to collect on my higher payment based on age 70. I plan to delay my collecting for 5 years as well to age 70. We also have two old cars. A modest paid for home of around $175K in the hills of NW Jaysay. But, yes, an expensive bottle of Red Wine awaits for my celebration on August 22nd.
I'm not that close to retirement - but I'm acting like it now and my biggest interest now is trying to build up some amount of $$ outside the system - cash or some other kind of liquid assets. I've not done anything else after tax besides that, but it's the part I'm most focussed on at this point - 14 years out from actual retirement when I'm done working...I'm super conservative after watching others in my current age range get hammered by huge drops in markets and being screwed for retirement...
I'd love to see a video about the Vanguard Target Retirement Funds. My employer started people with one when we switch to a different management company. It was a hectic time in my life with working FT with young children in school and let it go to the Target Fund for several years. I already had some from before the change in management going to Vanguard Primecap which was doing great for years, way better than the Target fund so I moved some from Target Fund to Primecap. Now at 53, I wonder if I should move it back. For now I'm trying like crazy to get rid of our mortgage. My husband is 62 and neither of us want a mortgage in retirement. He is not mentally or physically ready to retire. He gets bored with more than 2 days off work. With the extra I'm putting on our mortgage, it will be gone in 2 yrs instead of 8 and we can really jam it on retirement accts.
Good advice Josh, I am 57 and plan on retiring at 62. I have $620K between 401K and a Roth. What about losing the dollar cost avg. if the market drops? Is that a worry?
I had never heard this before, but it makes complete sense to build up your cash reserve prior to retiring. I am 2-years away from retiring -- quick question: I have a cash balance pension and instead of taking the annuity I'm taking the cash. I was planning on using this money to fund my cash reserves of 4-years. Does this accomplish the same thing?
No way she can't retire yet ! Experts say she needs 110% of her pre retirement income . She's earning 150k now so her four year cash bucket should be 660k . Get back to work ....lol
guess you missed the part where he said she only needs $30k-$35k per year to live on... Also look up the stats on how many people retire with a $1m portfolio... It's a pretty low % of the overall population (USA)
@@ImprovedEngineering Could you post a link to those stats you just mentioned, by way of reply,, please? I'm curious about it too and would like to know.
I’m in the same boat but I’m retiring next year, I’ve got 300g into a vanguard mutual fund earning 4.75% and I get 18g annually from a high yield dividend account plus my high growth stock fund bucket and s&p500 (around 875g) I won’t need to touch. No mortgage, Is this similar to your approach with the short term bonds funds you mentioned?
Healthcare cost are important to plan for as well. I started building up my HSA account for several years before I retired. Once retired I signed up for a high deductible Obamacare plan. If you manage your income you can live well and still pay $0 for monthly healthcare premium on a high deductible plan. The advantage of paying your deductible out of the HSA is that money is not counted as income for the Obamacare premium calculation. I have enough in the HSA to carry my wife and me to Medicare.
I’m glad you brought this up. I’ve been on this same thought for some time. Use my cash reserves or Roth accounts to hold income down to lower taxes on any SS income along with reducing Obamacare until Medicare kicks in
Adding to your list of regular families here: 2010 & 2012 vehicles, same house the past 18 years, same job the past 40 years. Keeping my head down and slogging onward. Regarding cash reserves, there are a couple other options previously discussed: One is some have pensions so may be able to let their investments run, since pensions and SS are similar to annuities. Another is investments in some 401k brokerage accounts can have positions in commodities (e.g., gold & silver), bonds, and stable value such as GNMA. I consider those as cash. P.S. Great topic!
I use a different approach, since I invest in actual stocks. I keep a substantial pool of cash in my portfolio, and draw out money as needed. The dividends from my stock portfolio come in steadily, and replace the cash I have drawn out. If I don't reinvest any of this money, I will always have enough money to live on without selling stock. This method will work with either a retirement account or a regular account. In the retirement account, the RMDs will eventually start to outrun the cash coming in - when you're in your late 80s, you have to take out 8-9% every year. By then, your will have been retired about 25 years, and your stocks should have appreciated a lot even as they paid out the stream of dividends you've been using to live on.
@@dougb8207 Yes, in today's climate 3% dividend yield is pretty easy, 4% not too bad, but the higher yield you pursue the fewer companies you'll be able to invest in, and the ones left have less growth.
@@Sylvan_dB yes, and for example, to achieve $21k per year income, at 3% one would need $700k invested. That's a lot of coin, and even with SS may not be enough for many to get by on. Tough nut to crack sometimes; thank goodness for the advice from this board. By the way, I'm there with those investing for dividends. Another good point is one can look for companies who regularly increase them. I'm primarily in growth, but have some dividend holdings also. On our way back from Wisconsin through IL this afternoon my wife pointed out an interesting building and said she'd never heard of Abbvie. I explained we own a very small piece of the company and they pay an almost 5% dividend. They were a spinoff of Abbott labs and do mostly international business. At least we own some of it for now; that could quickly change. I'm not thrilled with the 5 year trend.
@@dougb8207 Right, but the traditional rule of thumb is still in that 3%-4% range. It's only for the higher withdrawal rates where dividends alone get risky. So then you are left with selling some. And since these solid dividend payers are less volatile than the market, the "selling some" approach is also less risky. I've only been focusing on growing dividends since 2002. I wish I had started earlier!
@@Sylvan_dB yes! I've heard the total returns cited in stock markets over the years include about 40% of that as dividends. I'm with you on that; wish I'd started many years ago. I read a lot, but as with investments, didn't diversify into an important area: finances. I was interested but unfortunately didn't make it beyond the mutual fund magazines, which have become twisted into material I no longer care to read.
In this case saving 2years of expenses is a reasonable goal because her expenses are so low relative to her income . Most people don't have that luxury and should start planning their income strategy 5 years before retirement .it is all about not taking on any more risk than necessary to make sure you don't run out of money before you run out of life....Great video Josh well done.
I was thinking the same thing. I can’t imagine saving two years of expenses in the two years before retirement. People would need to start earlier. Then it eats into your long-term investing.
Why not use a bond ladder in something really safe (us bonds) such that the amount that comes due is the amount you need to live on. If you need it, use the maturing bonds to live on , if not buy new 5 year bonds, so keep 5 years of living expenses each year in bonds that mature that year, ie retiring in Jan 2021 have 1 year expenses in bonds that mature Jan 2021, the same amount maturing in Jan 2022, 2023, 2024 and 2025. If the stock marked went up enough that you can draw living expenses for that year from dividends/stock marked gains do that and roll the 2021 maturing bills into those maturing in 2026 and continue. You'll at least get some interest to partially offset inflation, if the market goes down, live on the maturing bonds. When the market recovers, you can replace any of the years you've spent to bring you back up to having 5 years of expenses in maturing bonds (each year. Since you're letting the bonds mature and not selling them prior and there not in a bond fund, you can ignore the fluctuations in value as interest rates move. You know you'll get your money back with interest on maturity (assuming the government doesn't default...)
In a word, set up that "barbell"! We're into retirement 3-plus years and did that... and we still have a hefty cash reserve. Market crash of March was scary, but it didn't change a thing in our retirement. Great advice! (Hope Pablo's visit to the vet was a success!)
Out of many, many useful videos this video definitely is in the to 1% in terms of importance for me. Our net worth is about $6M but we only have around $200k in cash, so we need another $160k in cash per Josh’s four year recommendation of cash based on our spending rate, $90k/year.
Well having a big stash of cash is risky too especially if all the economic experts are predicting that the fiat monetary systems is going to collapse within the next few months.
Thanks for the useful information, it is much appreciated. My 401k does not have a pure cash option, the closest thing available is a stable value fund (referred to as Interest Income). It appears to primarily be invested in short term treasuries, and it has never lost money in any year for the life of the fund which dates back to 1985. It earned 2.1% last year before expenses. Can this be considered the equivelent of cash for retirement planning purposes ? I am 60 years old and plan on retiring at the end of next years, Thank you ...
I'm confused about the 2 years. If the employer matches 50% of her 401k contribution up to a certain amount, shouldn't she at least contribute that to her 401k and then put everything else to her four years of cash fund?
I'm assuming this woman is near "normal" retirement age (near 60 at least) so that's why you tell her to put her money more in the 401k and stop with the Roth. If you're 50-55 years old and going for retirement, the 401k locks up that money unless you do a Roth conversion which needs to sit for 5 years to minimize penalties, correct? If she was in the earlier age range wouldn't she want Roth (to use principal for w/d) or just a plain old post-tax brokerage with TIPS or maybe Wellesley fund to be in "cash"?
yes and no. There is the 55 rule that says you can withdraw from you 401K if you still have it with the employer that you retired from and you didn't take another job.
The divorce split everything down the middle. My ex thought “alimony “ would make him a fool. My state offers alimony or home maintenance. Alimony would have meant I paid the taxes on the amount I received and he could have deducted it from his taxes. So I was fine getting “home maintenance.” Because of the situation I could have gotten everything we owned and left him with the maintenance and child support payments. I chose the high road. I don’t regret it but I wish he wouldn’t have run up the court and lawyer fees. The court refused him visitation for 1 yr and I got full custody for the next 2 yrs. I allowed him visitation if he was sober. Eventually I left it up to my son as he was 16yrs and my ex had been sober for 1yr at that point. Its sad you ended up having to “look in”.
I agree with your suggestion for her , makes total sense. My nug is half of hers and I have to pay off the house. Wish you could discuss how to balance , mortgage, s&p 500 and cash during the last two years.... I also plan to have start a side hustle now which I will grow after quitting the COJ .... considering tapping my Roth at age 60 to finish off the mortgage....
No guarantee the S&P will continue going up at 10%each year into the future. For a 17 year period the S&P 500 went sideways. You could buy shares in a fund like Berkshire Hathaway. I reckon you need to have 12 months cash to cover for a crash in the market and all will be good.
@@johnsonajayi7846 the past does not guarantee the future. The S&P 500 may have increased vs the dollar over the last 20 years. The dollar may have decreased in value a lot in the last 12 months.
I still like immediate fixed annuity and purchase immediate income in small chunks as needed for basic living expenses , at least for the basic monthly income, so annuity covers basic living monthly for life. Not all in immediate annuity. And then have some cash also.
Excellent advice on the need to have a cash portfolio. I'm wondering if and when the market goes down again (some -25% or worst) if she should re-deploy some of that cash into her stock portfolio to take advantage of the potential gains as we saw in 2008 and recently during the initial pandemic.
The market will most certainly go down but if you have stocks in dividend aristocrat stocks and live of the dividends then you don't need to worry too much since you are not selling shares.
This is true. I'm in my mid 50's now. My wife and I were following this same trajectory. Last two years, I pulled out my money and invested with her wealth manager. Not catching up with her profits over the years, but at least I earn more. I'm making money even before retiring, and my retirement fund has grown way more than it would have with just the 401(k). Haha.
I have 22 months till 62 birthday. I have My home paid off. I have no debt at all. I hope to have $70k in bank by 62bday. I have $3800. A month income. My living expenses are $800 a month. $500. F $200. City utilities $60. Internet $40. Lawn.
@@hachimaru295 I know. But my lawn is big and my next door neighbor is landscaper guy. It’s not like I’m hurting for money. I want to buy one of those old fashion No engine push lawn mowers. But my lawn is big
I am doing this now. I am 67 and plan on semi-retiring in three years. I am transitioning into a 1099 position. Should I set-up an S-corp or an LLC to pay less SS or just go without?
Your arguments are all sound and valid. However you failed to take into consideration the possibility of inflation or hyperinflation which could conceivably happen now due to the FED infusion of money. If we had inflation of 10% or 20% hypothetically, your cash slowly becomes worthless. The bottom line is with dollars becoming worth less due to printing of money by the Feds, the only true store of value is to hold a significant amount of gold in your portfolio.
I think there is a fault in this strategy. OK, this lady puts her 401(k) contributions into a stable value fund or a short bond fund. Then the market goes down, and all her funds go down in value except the stable value fund and the short bond find. The problem is that most 401(k) plans don't allow to withdraw from a particular fund. If you withdraw $20,000 it will be divided equally between all funds in the account. It means that the strategy of falling back on cash-like accounts during bear markets will not work as expected. That is why you actually need an IRA, not a 401(k) in a stable value fund. The problem is that the maximum contribution for IRA is much smaller. You can also convert from 401(k) to IRA but again you can't choose what funds to convert. That is why my suggestion is: this lady should continue to contribute to S&P 500 in her 401(k) as before (and let the money grow) and periodically convert part of the gains into an IRA in a stable fund.
Makes sense.....I’m maxing my 457b and hope to have $400,000 by retirement (6 years). Great idea to have that cash. I’ll stop then in 4 and build it up. Thanks 🙏🏻
Where do you put the cash? In the bank? It pays nothing but there is also no risk. I remember when I could earn 7% on passbook savings in 1987 and 10% on money market savings with no risk...even as late as 2004 I was getting 4% on passbook savings with no risk..those days are g*o*n*e.
Helpful to hear I’ve been doing the right thing by sticking to pre-tax 401K contributions. I was hearing a lot about you should do Roth so you save on taxes post retirement but my logic was I’m getting killed on taxes now (almost identical scenario to your client but also with dividend income that has increased over the years as my investment portfolio grew) so need to defer as much income as possible. My income will be less when I hopefully retire early at 55.
You are making sense. Always have enough liquidity to ride out market down turns. Where sequence of returns is a problem is where you have to sell stocks in a down market to make your basic bills.
@@rudy1322 It depends on the expense you would be comfortable with and your expected social security. I say your desired yearly expense minus expected social security times 15. That is a ball park figure. As an example, if you want to live at about 50k per year and expected social security is 25k a year. You want to have 25k * 15 which is about 375k. This is a ball park figure, ymmv. Obviously more is always better but you can also live with less if you have to.
I was in the same boat. I reduced my spending by a lot and kept my money in low fee index funds like VFIAX and closed my eyes. When I opened them up 4 years later I couldn't believe how much it appreciated.
i just clicked on your video for the first time. Im in my 40s. Which video would you recommend i start off with with takes me through your basics of saving for retirement??
